OLR Bill Analysis

sSB 1035

AN ACT CONCERNING WHITE COLLAR CRIME ENFORCEMENT, THE CONNECTICUT UNIFORM SECURITIES ACT AND CORPORATE FRAUD ACCOUNTABILITY

SUMMARY:

This bill makes several changes to current banking and criminal laws to improve white-collar crime enforcement. It increases the fines for certain banking and accounting law violations and the offense level for certain white-collar crimes. The bill conditions financial institutions' ability to effect certain transactions in part on whether they have adequate anti-money laundering programs, policies, and procedures and a record of compliance with anti-money laundering laws and regulations. It contains provisions limiting a loan obligor's liabilities or imputing them to others.

The bill allows the banking commissioner to revoke, deny, suspend, restrict, or condition a broker-dealer or investment adviser applicant's registration or activities if he has engaged in fraudulent securities or commodities practices. It also permits the commissioner to order a person who violated the Uniform Securities Act, whose sale or offer to sell securities would violate the Uniform Securities Act, or who engaged in a dishonest or unethical practice in the securities or commodities business both to make restitution and to disgorge sums obtained by the violation or bad practice.

The bill creates whistleblower protections for employees who assist in investigations or proceedings regarding certain state and federal white-collar crime laws. It prohibits accountants from altering, destroying, or concealing documents for seven years after they complete a corporation's audit. And the bill deems a violation of its provisions regarding state investigations, accountants, and certification of financial statements to be an unfair or deceptive trade practice.

EFFECTIVE DATE: October 1, 2003, except for the section on the State Board of Accountancy report, which takes effect upon passage.

VIOLATIONS OF BANKING LAWS (§§ 1-3)

The bill increases from $ 7,500 to $ 100,000 per violation the civil penalty the banking commissioner may impose on someone who (1) the commissioner finds, after a hearing, has violated a banking law, regulation, rule, or order or (2) does not request a hearing on his violation within the time specified or fails to appear at the hearing. It also eliminates a provision allowing the commissioner to order a civil penalty up to $ 15,000 for each violation of the Connecticut Abusive Home Loan Lending Practices Act.

If the commissioner believes that a person has violated, is violating, or is about to violate a banking law, regulation, rule, or order, the law allows him to (1) bring an action in Hartford Superior Court to enjoin the act or practice, (2) seek a court order for a penalty, or (3) apply to the Hartford Superior Court for an order of restitution. The bill increases from $ 7,500 to $ 100,000 per violation the penalty that the commissioner may request from the court. It also specifies that the penalty may be imposed on anyone who violates a banking law, regulation, rule, or order, not just an order issued by the commissioner, as current law states.

The bill replaces the terms "officer, director, manager, or general partner," or combinations thereof, with "related person" for provisions addressing these parties' banking law violations. It defines a related person as a director, officer, employee, independent contractor, manager, or general partner. The bill also adds "Connecticut holding companies" to the list of financial institutions against whose employees the commissioner may take action for violating banking laws. It defines a Connecticut holding company as a holding company that holds a Connecticut bank as a subsidiary. The bill prohibits a related person who has been removed or suspended from office by an order because he violated banking laws from beginning or continuing as a related person of any bank, federal or state credit union, Banking Department licensee, or holding company while the order is in effect, without the commissioner's written consent.

The bill specifies that the resignation, termination of employment, or separation (including a separation caused by an institution closing) of any related person against whom the commission may issue an order does not affect the commissioner's authority to issue notice and proceed against the related person, as long as he sends notice within six years after the person's resignation, termination of employment, or separation. It increases from $ 1,000 to $ 10,000 the maximum civil penalty the commissioner may impose for banking law violations. But the limit does not apply if the violation, breach, unsafe or unsound practice, or misuse of position (1) is part of a pattern of misconduct, (2) has caused or is likely to cause a material loss to a bank, Connecticut holding company, Connecticut or federal credit union, or credit union service organization, (3) will result or has resulted in a related person's pecuniary gain, (4) is a violation of provisions prohibiting false or misleading statements, false entries, statements, or reports, derogatory statements, or other prohibited activities of licensees; or (5) is a violation of the Connecticut Abusive Home Loan Lending Practices Act.

FALSE ENTRIES (§ 4)

The law requires imprisonment for up to 10 years if (1) a financial institution's officer, agent, or employee makes a false entry on the institution's collection or forwarding register or any other book; (2) a financial institution's officer, agent, or employee fails correctly to record on the institution's books a change in its assets or liabilities, with intent to deceive the commissioner or the institution's officers or auditors; or (3) any person, with intent to deceive, aids or abets an officer, agent, or employee in such a false entry or failure correctly to record. If the commissioner finds, as the result of an investigation, such a false entry, failure correctly to record, or aiding or abetting, the bill makes it a violation of banking laws and subject to the appropriate penalties and procedures (such as enforcement actions, civil penalties, suspension or revocation of licenses, and cease and desist orders).

DEROGATORY STATEMENTS (§ 5)

The law imposes a fine of up to $ 1,000, imprisonment for up to one year, or both, on a person who willfully and maliciously makes, circulates, or transmits derogatory statements affecting banks or credit unions, or who counsels, aids, or induces someone else in so doing. If the commissioner finds, as the result of an investigation, such making, circulating, transmitting, aiding, or inducing, the bill makes it a violation of banking laws and subject to the appropriate penalties and procedures.

FALSE STATEMENTS OR REPORTS (§ 6)

The law imposes a fine of up to $ 500, imprisonment for up to one year, or both on a person who knowingly makes a false statement or report, or willfully overvalues land, property, or security, with intent to defraud and to influence the action of a bank, out-of-state bank with a Connecticut branch, Connecticut credit union, small loan licensee, or first or secondary mortgage lender or broker licensee, in connection with an application, advance, commitment, loan, or extension of credit, and upon which the bank, credit union, or licensee relies in taking action. If the commissioner finds, as the result of an investigation, such a false statement or willful overvaluation, the bill makes it a violation of banking laws and subject to the appropriate penalties and procedures.

CRIMINAL HISTORY RECORDS CHECKS (§§ 7, 34)

The bill gives the commissioner the discretion to arrange for fingerprinting or any other method of positive identification the State Police Bureau of Investigation requires, to be used in conducting a criminal history records check for (1) each organizer and prospective initial director, in connection with an application to organize a Connecticut bank and (2) a Connecticut bank's directors, upon their re-election, and new officers.

ANTI-MONEY LAUNDERING ACTIVITIES (§§ 8-16, 26-29, 31-33)

Banks

The bill prohibits the commissioner from approving Connecticut banks' mergers or consolidations if the constituent banks' proposed or existing anti-money laundering activity programs, policies, and procedures are inadequate, or if the constituent banks lack a record of compliance with anti-money laundering laws and regulations. It also requires the commissioner to disapprove an offer, invitation, request, agreement, or acquisition of a bank or holding company's voting securities if the acquiring person's anti-money laundering programs, policies, and procedures are inadequate and he does not have a record of complying with anti-money laundering laws and regulations.

Sale of Assets

The bill prohibits the commissioner from approving (1) a Connecticut bank or credit union's sale of all or a significant part of its assets to a bank; (2) a Connecticut credit union's sale of all or a significant part of its assets to a Connecticut or federal credit union; (3) a Connecticut bank's purchase of all or a significant part of the assets of a federal bank, federal credit union, or out-of-state credit union; or (4) a Connecticut credit union's purchase of all or a significant part of a federal credit union's assets if the purchasing institution's programs, policies, and procedures regarding anti-money laundering activities are inadequate, or it does not have a record of compliance with anti-money laundering laws and regulations.

Mutual Institutions and Capital Stock Banks

The bill requires the commissioner to approve the conversion of a mutual institution into another type of mutual institution, a mutual institution into a capital stock bank, a capital stock bank into another capital stock bank, or a capital stock institution into a mutual institution if (1) the converting institution meets existing conversion requirements and (2) the converting institution's programs, policies, and procedures relating to anti-money laundering activities are adequate, and it has a record of compliance with anti-money laundering laws and regulations.

Credit Unions

The bill prohibits the commissioner from approving a Connecticut credit union's merger with a Connecticut, federal, or out-of-state credit union without considering whether (1) the merging and resulting credit unions have adequate programs, policies, and procedures relating to anti-money laundering activity and (2) the merging credit unions have a record of complying with anti-money laundering laws and regulations. It requires the commissioner to approve a Connecticut credit union's conversion into a federal credit union if he determines that the converting credit union has adequate anti-money laundering activity programs, policies, and procedures, and that it has a record of compliance with anti-money laundering laws and regulations.

The bill also requires the commissioner to approve the conversion of a federal or out-of-state credit union into a Connecticut credit union and to issue a certificate of authority to operate as a Connecticut credit union if he finds that the converting credit union has (1) complied with the other conversion requirements; (2) adequate programs, policies, and procedures relating to anti-money laundering activities; and (3) a record of compliance with anti-money laundering laws and regulations. And it prohibits the commissioner from approving a Connecticut or federal credit union's conversion into a mutual savings bank, mutual savings and loan association, or mutual community bank unless the converting credit union has (1) adequate anti-money laundering programs, policies, and procedures and (2) a record of complying with anti-money laundering laws and regulations.

Currency and Foreign Transactions Reporting Act

The bill requires all Connecticut banks, Connecticut credit unions, and broker-dealers to comply with the applicable provisions of the federal Currency and Foreign Transactions Reporting Act (31 USC 5311, et seq. ).

LOAN POLICIES (§ 17)

The bill requires each Connecticut bank's governing board to adopt a loan policy, at least once a year, governing loans made under the banking loan statutes. It prohibits a Connecticut bank from making a secured or unsecured loan unless doing so is consistent with the policy. The policy must require written applications for all loans, and address (1) the categories and types of secured and unsecured loans the bank offers; (2) the manner in which loans will be made and approved; and (3) underwriting guidelines and collateral requirements. It must also address, in accordance with safety and soundness standards, (1) acceptable standards for title review, title insurance, and appraiser qualifications; (2) procedures for approving and selecting appraisers; (3) appraisal and evaluation standards; and (4) the bank's administration of the appraisal and evaluation process. The bill requires the loan policy and loans made pursuant to it to be subject to the commissioner's examination of safe and sound banking practices.

At least semiannually, the bill requires each Connecticut bank's governing board to review the loans the bank made under the banking loan statutes and include the results in the board's minutes. It also directs the board to cause the bank to use reasonable efforts to divest, as expeditiously as possible, any loan that the board determines is no longer prudent or consistent with the bank's loan policy.

LIMITATIONS ON OBLIGOR'S LIABILITIES (§18)

Partnership Liabilities

The bill eliminates a provision specifying that general partners' individual liabilities be included when computing a partnership's liabilities, and the partnership's liabilities be included when computing a general partner's individual liabilities. Instead, it contains new, broader provisions described below limiting an obligor's liabilities or imputing them to others.

Direct Benefit and Common Enterprise Tests

The bill directs one obligor's liabilities to be attributed to another person and each such person to be deemed an obligor when (1) the loan proceeds will be used for the other person's direct benefit, to the extent that the proceeds are to be so used or (2) a common enterprise is deemed to exist between the people. It considers loan proceeds to be used for another person's direct benefit, and attributable to that person, when the proceeds, or assets bought with the proceeds, are transferred to another person, except in a bona fide arm's length transaction where the proceeds are used to acquire property, goods, or services. The bill aggregates separate obligors' liabilities and deems a common enterprise to exist when:

1. each obligor has the same expected source of repayment for the loan, and neither obligor has another source of income from which the liability, along with the obligor's other liabilities, can be fully repaid;

2. loans are made (A) to obligors who are related directly or indirectly through common control, including where one obligor directly or indirectly controls another and (B) substantial financial interdependence exists between or among the obligors;

3. separate people borrow from a Connecticut bank to obtain a business enterprise, of which they will own more than 50% of the voting securities or voting interests, in which case a common enterprise is deemed to exist between the obligors for purposes of combining the acquisition loans; or

4. the commissioner determines, based on the facts and circumstances of particular transactions, that a common enterprise exists.

An employer will not be considered a source of repayment because of wages and salaries he pays to an employee unless the obligors are related through common control and "substantial financial interdependence" exists between or among them. Substantial financial interdependence exists when 50% or more of one obligor's annual gross receipts or expenditures come from transactions with the other obligor. Gross receipts and expenditures include gross revenues, expenses, intercompany loans, dividends, capital contributions, and similar receipts or payments.

The bill prohibits loans to an obligor and its subsidiary, or to different subsidiaries of an obligor, from being aggregated unless either the direct benefit or common enterprise test is met. It defines a corporation or limited liability company as an obligor's subsidiary if the obligor owns or beneficially owns, directly or indirectly, more than 50% of the corporation or company's voting securities or voting interests.

The bill deems a loan to a partnership, joint venture, limited liability company, or association to be a loan to each member of that entity. But it exempts limited partners in limited partnerships and members of joint ventures, limited liability companies, or associations unless valid provisions of the partnership or membership agreement hold partners or members generally liable for the entity's debts or actions. The bill does not attribute members' or partners' loans to the partnership, joint venture, limited liability company, or association unless either the direct benefit or the common enterprise test is met. It considers both tests met between a partner or member and the entity when a loan is made to the partner or member to buy an interest in the partnership, joint venture, limited liability company, or association. But loans to partners or members will not be attributed to the entity's other members unless either test is met. (It is unclear which parties must meet the test. )

Loans to Foreign Governments

The bill requires loans to foreign governments and their agencies and instrumentalities to be aggregated only if the loans fail to meet either the means or purpose test at the time the loan is made. It considers the means test met if the obligor has resources or revenue of its own sufficient to meet its debt obligations. If the government's support, excluding a central government's guarantees of the obligor's debt, is greater than the obligor's annual revenues from other sources, the bill presumes the means test has not been satisfied. The bill considers the purpose test met if the loan's purpose is consistent with the obligor's general business purposes. In order to show that the means and purpose tests have been satisfied, the bill requires a Connecticut bank to retain in its files at least the following items:

1. a statement, along with supporting documentation, describing the borrowing entity's legal status and degree of financial and operational autonomy;

2. the borrowing entity's financial statements for at least three years before the date the bank made the loan or extension of credit, or for each year the borrowing entity has been in existence, if less than three;

3. financial statements for each year the loan is outstanding;

4. the bank's assessment of the obligor's means of servicing the loan, including (A) specific reasons supporting the assessment; (B) an analysis of the obligor's financial history; (C) the obligor's present and projected economic and financial performance; and (D) the significance of any financial support third parties, including the obligor's central government, provide to the obligor; and

5. a loan agreement or other written statement from the obligor clearly describing the loan's purpose. (The written representation will usually satisfy the purpose test, but when at the time it disburses the funds, the bank knows or has reason to know of information suggesting the obligor will use the proceeds in a manner inconsistent with the written representation, the bank may not accept the representation without making further inquiry. )

INSIDER LOANS (§ 19)

Current law subjects Connecticut banks to federal regulations limiting insider loans and requires banks to comply with other federal regulations calling for public disclosure of insiders' indebtedness. The bill expands this provision to prohibit a Connecticut bank or its affiliates' executive officers, directors, or principal shareholders from knowingly receiving, or knowingly permitting any of that person's related interests to receive, from a Connecticut bank, directly or indirectly, any extension of credit that violates the federal restrictions. It further prohibits an executive officer, director, employee, agent, or other person from participating in bank affairs that violate the federal restrictions.

UNIFORM SECURITIES ACT (§§ 20-23)

Registration

The bill prohibits anyone from transacting business in Connecticut as a broker-dealer or a broker-dealer's agent in breach of a currently effective sanction that would prohibit the person from effecting securities transactions in this state and that was imposed by (1) the federal Securities and Exchange Commission (SEC) or (2) a self-regulatory organization registered under federal law, administered by the SEC, of which the broker-dealer is a member. The bill eliminates a provision allowing an investment adviser registered with the SEC to file a notice and a nonrefundable $ 100 fee with the commissioner for each branch office in Connecticut instead of filing an application for branch office registration. Instead, it subjects these investment advisers to the current prohibition on broker-dealers and investment advisers transacting business within Connecticut unless they register each place of business as a branch office and pay a nonrefundable $ 100 fee. The bill also deletes a provision requiring an investment adviser registered with the SEC to notify the commissioner of its acquisition or relocation of any branch office in Connecticut in the same manner and at the same time as it notifies the SEC and to pay the commissioner a nonrefundable $ 100 fee. Instead, it subjects these investment advisers to the same notification and fee requirements as all other investment advisers and broker-dealers in Connecticut.

Fees

The bill specifies that investment adviser and broker-dealer registrations expire at the close of business on December 31 of the year they were issued. Current law states that these registrations expire on December 31 of each calendar year unless renewed. The bill requires broker-dealers and investment advisers receiving a "mass transfer" to pay the commissioner or his designee $ 50 for each agent or investment adviser agent whose registration is transferred. It defines a mass transfer as a transfer of one broker-dealer or investment adviser's agents to another broker-dealer or investment adviser due to the transferring entity's cessation of business activity, succession, acquisition, merger, consolidation, or other reorganization.

Denial, Suspension, or Revocation of Registration

The bill increases from five to 10 years the look-back period for which the commissioner can revoke, deny, or suspend a registration, or by order restrict or impose conditions on an applicant or registrant's securities or investment advisory activities. Under current law, the commissioner can revoke, deny, suspend, restrict, or condition an applicant or registrant's registration or activities if he is the subject of certain state, federal, or international sanctions that are currently effective or were imposed within the past five years. One of the sanctions is a cease and desist order entered by the SEC or the securities administrator of another state or Canadian province, and current law prohibits the commissioner from instituting a revocation or suspension proceeding more than one year from the date of the sanction on which he is relying. The bill allows him to institute the proceeding for up to five years from the sanction date.

The bill allows the commissioner to revoke, deny, suspend, restrict, or condition an applicant's registration or activities if he has engaged in fraudulent securities or commodities practices, in addition to the dishonest or unethical practices for which he may already take action. The bill specifies that these fraudulent, dishonest, or unethical practices may include abusive sales practices in the applicant's, registrant's, or person's business dealings with current or prospective customers or clients.

Commissioner's Enforcement Powers

If the commissioner finds, on investigation, that (1) anyone has violated, is violating, or is about to violate a provision of the Uniform Securities Act; (2) a person's further sale or offer to sell securities would constitute a violation of the Uniform Securities Act; or (3) anyone has engaged in a dishonest or unethical practice in the securities or commodities business, current law allows the commissioner to order that person to cease and desist from the violations, further sales or offers to sell, or further dishonest or unethical practice. If any other person is, was, or would be the cause of a violation of the Uniform Securities Act due to an act or omission the person knew or should have known would contribute to the violation, the bill allows the commissioner to order him to cease and desist from causing such violations.

The bill allows the commissioner to order a person, or someone who directly or indirectly controls a person, who has engaged in one of the three types of violations listed above both to make restitution and to disgorge sums obtained by the violation or bad practice. Current law allows the commissioner to order one or the other, but not both.

The law requires the commissioner to hold a hearing when, as the result of an investigation, he charges a person with violating the Uniform Securities Act, unless the person fails to appear at the hearing. The bill increases from $ 10,000 to $ 100,000 the maximum fine the commissioner may impose if (1) he finds after the hearing that the person violated the Uniform Securities Act or (2) the person fails to appear at the hearing. It also increases from $ 10,000 to $ 100,000 per violation the court order that the commissioner may seek against anyone found to have violated the commissioner's orders.

CREDIT UNION GOVERNING BOARDS (§ 25)

The law requires Connecticut credit union directors to take and subscribe to an oath or affirmation regarding their duties and responsibilities. The bill specifies that (1) each director must take or subscribe to the oath or affirmation upon election, (2) the oath or affirmation must be recorded in the governing board's minutes, and (3) the credit union must promptly file a copy of the minutes with the commissioner.

BANK DIRECTORS' OATH (§ 30)

The bill requires each Connecticut bank director, upon election, to take and subscribe to an oath or affirmation that the director will (1) diligently and honestly perform his duties in administering the bank's affairs; (2) remain responsible for the performance of his duties, even if he delegates them; and (3) not knowingly or willfully permit the violation of a law or regulation applicable to Connecticut banks. The oath or affirmation must be recorded in the bank's minutes, and the bank must promptly file a copy of the minutes with the commissioner.

STATE INVESTIGATIONS (§ 35)

The bill prohibits individuals and publicly held corporations from altering, falsifying, destroying, or concealing any record, document, or tangible object in order to impede, obstruct, or influence a state investigation relating to publicly held securities after a state investigation has begun, or after they have reasonable knowledge that a state investigation is likely to begin.

WHISTLEBLOWER PROTECTION (§ 36)

The bill prohibits a publicly held corporation or its officers, employees, contractors, subcontractors, or agents from discharging, demoting, suspending, threatening, harassing, or discriminating against an employee in the terms and conditions of employment because of the employee's lawful act to (1) provide information, cause information to be provided, or otherwise assist in an investigation involving conduct the employee reasonably believes violates federal laws prohibiting frauds and swindles by mail, fraud by wire, radio, or television, bank fraud, or securities fraud, any SEC rule or regulation, or any federal or state law regarding fraud against shareholders, when the information or assistance is provided to, or the investigation conducted by, (A) a federal or state regulatory or law enforcement agency; (B) a member or committee of Congress or the General Assembly; or (C) a person with supervisory authority over the employee, or another person working for the employer with the authority to investigate, discover, or terminate misconduct or (2) file, cause to be filed, testify, participate in, or otherwise assist in a proceeding filed or about to be filed, with the employer's knowledge, relating to an alleged violation of federal laws prohibiting frauds and swindles by mail; fraud by wire, radio, or television; bank fraud; or securities fraud; any SEC rule or regulation; or any federal or state law regarding fraud against shareholders.

The bill allows an employee alleging discharge or other discrimination in violation of the whistleblower protection to bring an action for damages and injunctive relief against the violator in Superior Court for up to one year after knowledge of the specific incident giving rise to the claim.

ACCOUNTANTS (§§ 37, 39, 46)

The bill prohibits an accountant conducting an audit for a publicly held corporation from altering, destroying, or concealing any documents sent, received, or created in connection with the audit for seven years after the end of the fiscal year in which the audit concluded. It also requires accounting licensees to keep for seven years work papers they prepare in the course of auditing a publicly held corporation.

The bill prohibits a registered public accounting firm from violating a federal law restricting the activities accounting firms may perform for a securities issuer while they are conducting the issuer's audit. If a firm performs these activities while conducting the audit, the bill subjects it to State Board of Accountancy penalties for conduct reflecting adversely on a licensee's fitness as a public account, such as revocation, suspension, or refusal to renew a certificate, license, or permit or imposition of a civil penalty. The bill increases the maximum civil penalty the board may impose from $ 1,000 to $ 50,000.

CERTIFICATION OF FINANCIAL STATEMENTS (§ 38)

The bill requires each publicly held corporation organized under Connecticut laws or authorized to transact business in Connecticut to direct its chief executive officer (CEO) and chief financial officer (CFO) to certify (it is unclear to whom) that the corporation's financial statements fairly and accurately represent the corporation's financial condition. It allows a CEO or CFO who certifies the corporation's financial statement knowing that the statement does not fairly and accurately represent the corporation's financial condition to be fined up to $ 1 million or imprisoned up to 10 years, or both. It allows a CEO or CFO who willfully certifies the corporation's financial statement knowing that the statement does not fairly and accurately represent the corporation's financial condition to be fined up to $ 5 million or imprisoned up to 20 years, or both. (It is unclear what difference, if any, exists between knowing certification and willful, knowing certification. )

UNFAIR AND DECEPTIVE TRADE PRACTICES (§ 40)

The bill deems a violation of its provisions regarding state investigations, accountants, and certification of financial statements to be an unfair or deceptive trade practice. It identifies a private cause of action in the Connecticut Unfair Trade Practices Act (CUTPA) for a person or entity that suffers a loss due to such unfair or deceptive trade practices, and allows a court to award actual and punitive damages and equitable relief. The bill requires any person or entity seeking to pursue a private cause of action first to obtain the consumer protection commissioner's written approval.

The law prohibits businesses from engaging in unfair and deceptive acts or practices. CUTPA allows the consumer protection commissioner to issue regulations defining what constitutes an unfair trade practice, investigate complaints, issue cease and desist orders, order restitution in cases involving less than $ 5,000, enter into consent agreements, ask the attorney general to seek injunctive relief, and accept voluntary statements of compliance. Individuals can also bring suit. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorneys' fees; and impose civil penalties of up to $ 5,000 for willful violations and $ 25,000 for violation of a restraining order.

FRAUDULENT REPORT (§ 41)

The bill considers a person guilty of filing a fraudulent report if he knowingly or recklessly (1) files an accounting report that the person knows contains a false statement of material fact or (2) omits a material fact on an accounting report.

STATE BOARD OF ACCOUNTANCY (§§ 42-45)

The bill requires the State Board of Accountancy to conduct a study and recommend ways to strengthen its oversight of public accountant licensees who audit publicly held corporations. The board must submit a report on its findings and recommendations to the governor and the General Assembly by January 1, 2004. The bill increases the board's size from seven to nine members, the number of members who must hold current, valid licenses to practice public accountancy from four to five, and the number of public members from three to four.

The bill increases from $ 1,000 to $ 50,000 the maximum civil penalty the board may impose on a person found to have violated a public accountancy law or regulation. It also increases from $ 1,000 to $ 50,000 the maximum civil penalty the board may impose on a person who, without a valid license and permit, issues a report on another person, firm, organization, or governmental unit's financial statements.

PENAL CODE RECLASSIFICATION (§§ 47 - 55)

The bill reclassifies several white-collar crimes to increase the level of offense, as shown in Table 1.

Table 1. Penal Code Reclassification for White-Collar Crimes

Criminal Offense

Current Classification

Proposed Reclassification

Commercial bribery

Class A misdemeanor

Class D felony

Receiving a commercial bribe

Class A misdemeanor

Class D felony

Bribery

Class D felony

Class C felony

Bribe receiving

Class D felony

Class C felony

Bribery of a witness

Class D felony

Class C felony

Hindering prosecution in the second degree

Class D felony

Class C felony

Hindering prosecution in the third degree

Class A misdemeanor

Class D felony

Bribe receiving by a witness

Class D felony

Class C felony

Tampering with a witness

Class D felony

Class C felony

A class A misdemeanor is punishable by up to one year in prison, a fine up to $ 2,000, or both. A class D felony is punishable by one to five years in prison, a fine up to $ 5,000, or both. A class C felony is punishable by one to 10 years in prison, a fine up to $ 10,000, or both.

COMMITTEE ACTION

Banks Committee

Joint Favorable Substitute Change of Reference

Yea

19

Nay

0

Judiciary Committee

Joint Favorable Substitute

Yea

41

Nay

0